Monday, May 12, 2014

Krugman worries about zero inflation.

Krugman is worried stiff about low inflation, zero inflation and deflation. What’s he on about?

In the 1800s in Britain there was NO INFLATION. At least the price of bread in 1900 was the same as it had been in 1800. During that century there were of course periods of rising prices and falling prices. But curiously the periods of falling prices didn’t lead to the disasters portrayed by Krugman.

Moreover, that century was a period that enjoyed economic growth and technological improvement unparalleled in the history of planet Earth.

But I’m not saying I favor zero inflation or falling prices. I think the widely accepted 2% inflation target is about right. It’s just that a below 2% scenario is not the disaster that Krugman claims it is.